Visa has achieved a significant milestone by concluding the initial phase of its Central Bank Digital Currency (CBDC) pilot program in collaboration with prominent Hong Kong banks, HSBC and Hang Seng Bank. This pilot, conducted under the supervision of the Hong Kong Monetary Authority, represents a substantial step forward in the digital transformation of currency within the region.
Innovative Tokenization Strategy
Visa‘s e-HKD program introduces an innovative approach to tokenizing deposits. This process entails converting bank deposits into digital tokens on a blockchain ledger, backed by the bank’s balance sheet. The pilot demonstrated the ability for interbank transfers to achieve final settlement in near real-time. When a transfer occurred, the sending bank would burn the tokenized deposits on its ledger, while the receiving bank would mint them on its ledger. Simultaneously, interbank settlements took place via the simulated wholesale CBDC layer. Importantly, Visa’s platform operated seamlessly around the clock, surpassing traditional payment systems that often have downtime after business hours and on weekends.
Visa completes digital Hong Kong dollar pilot test with local banks
The e-HKD CBDC Pilot Programme will enter phase 2 following praise from the city’s monetary authority.
— X-Finance (@FinanceTwitty) November 1, 2023
Stringent Security Measures
Security played a crucial role in this endeavor. While the tokenized deposits moved securely through encryption, blockchain explorers provided visibility, yet the identities of participants, their balances, and transaction amounts remained confidential to non-bank users.
Charting the Path Forward in Phase 2
Encouraged by the success of the initial phase, Visa is now turning its attention to exploring tokenized asset markets and programmable finance. Notably, a ‘Property Payments’ use case was highlighted during the pilot, showcasing the potential for automated payments from a buyer to a property developer upon the completion date of the contract. This automation reduces delays and streamlines the closure of transactions.
Following commendation from the city’s monetary authority, Visa is gearing up for Phase 2 of the e-HKD pilot program. This next stage aims to build upon the solid foundation established in the initial pilot, further revolutionizing digital transactions and setting new standards for efficiency and security in the financial landscape.
Visa‘s successful pilot with Hong Kong banks paves the way for transformative advancements in digital currency and blockchain technology, offering a glimpse of the future of finance.
